During June 2020, the following transactions occurred in Michael Ltd.
- Revenue earned on credit, $869,250.
- Sales returns, $18,050
- Cash collected from Accounts receivable, $875,000.
Accounts Receivable has a debit balance of $637,167 and Allowance for Doubtful Debts has a credit balance of $9,075 at 1 June 2020. Ignore GST.
Based on percentage of net credit sales method and past experience, the firm’s bad debts expense for June has been estimated at 1% of its net credit sales. Ignore GST.
- Prepare general journal entries to record the transactions in June.
- Determine the bad debt expense for June and prepare necessary adjusting entries to adjust the bad debts expense.
- Prepare the relevant parts of the balance sheet that show how accounts receivable and the allowance for doubtful debts would appear on the balance sheet.
- On 18 July, the management of the firm has decided to write off the bad debts of $1,760 owed by one of its customers, John Ltd. Prepare journal entries.